New legislation aims to make the bank pay for opening fake accounts.
New legislation aims to help consumers sue Wells Fargo for secretly opening over 2 million accounts without customers’ authorization.
The Consumer Financial Protection Bureau fined the bank $185 million in September for the deceptive behavior, but the potentially thousands of affected Wells Fargo customers could not sue the bank over the damage caused. Instead, they are bound by mandatory arbitration clauses hidden in the fine print of their customer agreements.
Over half of credit card companies have these stipulations, the CFPB found, and they generally require customers to settle any disputes through private arbitration venues, rather than the courts. Mandatory arbitration clauses also allow companies to block class-action lawsuits, which tend to be a more effective means of seeking restitution.
Thursday’s bill builds on the proposed rule put forward by the CFPB earlier this year that would prohibit banks, credit card companies and other financial institutions from putting mandatory arbitration clauses in new contracts.
The Justice for Victims of Fraud Act would allow customers to sue Wells Fargo even if they previously signed contracts associated with their legitimate accounts that included mandatory arbitration provisions. The bill also opens the door to lawsuits against any institution that creates accounts without customer consent, a potential win for consumer advocates who have long criticized the use of mandatory arbitration in cases of fraud. Sponsored by over a dozen other Democrats, the Senate version of the bill is accompanied by parallel legislation in the House of Representatives introduced by Rep. Brad Sherman.
The bill comes as Wells Fargo signals it intends to enforce its arbitration agreements. The bank filed a motion last week asking the court to dismiss the first attempted class-action suit filed in response to the bank’s deceptive actions. Wells Fargo’s current arbitration policy prohibits customers from joining a class action, instead offering to cover the cost of mediation services.
In addition to the co-sponsors, about 14 consumer groups also endorsed the legislation, including the National Consumer Law Center, the Economic Policy Institute Center, the NAACP, and Americans for Financial Reform. “As demonstrated by Wells Fargo, forced arbitration ‘ripoff clauses’ give the financial industry an effective license to steal and keep misconduct out of the public eye,” the Americans for Financial Reform said in a statement. “The Justice for Victims of Fraud Act would restore consumers’ right to hold banks accountable in court when fraudulent accounts are opened without the consumers’ knowledge.”
But despite the many co-sponsors and endorsements, the bill lacks bipartisan support. Without it, proponents will likely face an uphill battle in the weeks remaining in the current Congress. And with a potentially pro-Wall Street administration set to take over, the bill may not even make it out of committee.